By Ilyce R. Glink and Samuel J. Tamkin
Saturday, October 2, 2010; E06
Q. I have been looking at a house in my neighborhood that went into foreclosure and is being sold by the bank. I have seen the property, and its current condition is just a framed-out shell. But my family and I immediately fell in love with it. It was new construction, and the builders ran out of money to complete the work.
The price of the house is $59,000. I discovered that upon completion, the intended price was to be around $550,000.
We have been trying to figure out how to buy this house given our financial condition. It will be at least 16 months before we emerge from bankruptcy, and I fear that either the house will be sold or taken off the market. I have found a job for $90,000 per year, plus bonuses.
Since I started work in May, I have saved $7,000. I realize that I will have to do plenty of work on the house, but I am skilled and have family and friends who are contractors and are willing to help. Is there any advice you have for me since I now am earning money and paying off my debts and saving again?
A. The problem you're going to have is getting a mortgage if you haven't been out of bankruptcy for at least three to five years. You most likely will have a hard time getting any kind of financing to buy the home in its unbuilt condition. Even if you pay cash for the house, you'll have a difficult time getting a construction loan to finish it. You may need to get out of bankruptcy first.
While it's unlikely you will find a lender to assist you, you may be able to raise the money from family members to buy the house. I'd normally recommend seller financing -- which is generally a long shot -- but it's unlikely to work for you because this is a foreclosure and the seller is a bank.
It's only a deal if it is the right house for you at the right price, on the right terms and at the right time for you.
Here are a couple of things you should consider. First, what will it cost to finish the house? That includes whatever framing, roofing, plumbing and electrical work remains to be done, as well as finishes to the house. You may find that the cost to finish the house will break your budget.
Second, if you do find the time, labor and money to finish the construction, will you be able to afford to live in and maintain the house? People often find a "bargain" in real estate but forget to consider the costs that come with a large home, including higher utility, maintenance and insurance costs, and larger property tax bills.
You need to make sure you've considered all your options and obligations for the years to come. It's great that you're saving money, but you need to decide whether you will need that money for college savings for your children or your retirement.
If you still want to press ahead, I'd spend some time chatting with lenders who can help you figure out whether you can make this work. More important, be sure to work with the lender to calculate whether owning this house will fit your long-term financial obligations and budget.
If you find that owning the property meets your long-term financial goals, then you'll want to talk to some local banks that keep loans in their portfolios and that may be willing to give you a loan, if not now, perhaps in the near future. Your local bank may be slightly more flexible with lending requirements than some of the national lenders.
Q. My stepfather and I own a house as tenants-in-common. The house has three liens: the first mortgage, a home-equity line for me and a second mortgage my stepfather took out to prop up his business. The house has been for sale for several months, and my stepfather has refused several offers that would have resulted in a loss on the initial investment but would have (at least) covered all the mortgages, costs, commissions and liens.
In the meantime, I have moved out of the state for a great job, so the house sits empty while I am still paying the mortgage and expenses. Neither of us wants to rent the house. What are my legal options toward encouraging him or forcing him to sell in a way that will protect my credit?
A. You can sue your stepfather, but you can also sell your share of the house since you own it as tenants in common. But few people want to buy half a home.
If you sue your stepfather, you run the risk of ruining your relationship -- not that having a vacant house isn't doing that trick pretty well. But lawsuits are also time-consuming and expensive.
If you haven't already, try working with a real estate agent to pull some comps (sales prices of neighborhood homes that are similar to yours) that show your stepfather where the market is and how much money you're losing every month you hang on to the property.
Q. I am currently going through a divorce. I've offered to let my wife have the house, along with the furniture, in return for her refinancing the mortgage. She is supposed to take my name off the note and give me $20,000 in cash to start over.
We purchased the house from her parents in 1998 for $210,000 and had a first mortgage of $125,000, held by her parents, and a second mortgage for $75,000 that her father said he did not plan on executing. We owe about $67,000 on the first .
Can my wife refinance and take out the $20,000? Her income is about $45,000 per year and mine is $85,000 per year. The interest rate on the loan is 7 percent, with about eight years left on the loan.
We have about $20,000 worth of furniture that would remain with the property. I plan to split my 401(k) and profit-sharing plan equitably. I have about $360,000 between the two and my wife has about $40,000 in hers.
With her receiving the house, I am looking to negotiate $100,000 for her from my retirement plans. Does this seem like a fair distribution of assets?
A. If I understand your question, there is about $142,000 owed on the property.
Whether your wife can refinance will depend on your in-laws, your wife's credit history and credit score, and her other debts and expenses.
If your wife only has the balance of the first mortgage to refinance, she should be able to refinance as long as the taxes, insurance and association fees (if any) aren't too high.
But to refinance in today's climate, the house must appraise well above the value of the first mortgage, your in-laws must release the liens on the house for both mortgages and your wife's income must be stable.
If you and she see eye-to-eye on the division of all the assets, the wild card might be your in-laws.
They might agree to refinance the balance of the mortgages in just your wife's name if they feel you are being more than fair to their daughter and grandchildren, if you have children.
Talk to your divorce attorney and make sure that the division of assets is in the range that would be acceptable to your wife. Frequently, if the division of assets seems unreasonable to one spouse, the division of the assets will fall apart and the divorce may no longer be amicable.
Ilyce R. Glink is an author and nationally syndicated columnist. Samuel J. Tamkin is a real estate lawyer in Chicago. If you have questions for them, write to Real Estate Matters Syndicate, P.O. Box 366, Glencoe, Ill. 60022, or contact them through Glink's Web sites, http://www.thinkglink.com and http://www.expertrealestatetips.net.